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    <h2 class="text-3xl mb-2 font-bold">Financial strength</h2>
    <p class="mb-2">
        For a robust picture of stocks you’re following, or those you’re
        thinking of buying, center your attention on Value Line’s Financial
        Strength rating.
    </p>
    <p class="mb-2">
        The Financial Strength rating is an analysis of a company’s balance
        sheet that reveals the company’s financial condition. A strong balance
        sheet typically suggests that the company’s stock price will be less
        volatile than the average equity in our coverage universe,, that it will
        be able to continue paying its dividend, and it has adequate financing
        to expand without paying hefty interest to banks or bondholders.
    </p>
    <p class="mb-2">
        The rating weighs numerous income statement and balance sheet factors
        similar to those the major credit rating agencies use: net income, cash
        flow, outstanding debt, leverage, business risk, level and direction of
        profits, earned returns, cash, corporate size, stock price, cash on
        hand, net of debt, and the outlook for profits.
    </p>
    <p class="mb-2">
        Our expert analysts assign companies Financial Strength ratings from A++
        to C, in nine steps. Analysts review each company’s rating quarterly,
        and require significant performance changes to alter its rating.
    </p>
    <p class="mb-2">
        As a rule, the largest companies with the strongest balance sheets and
        the deepest pockets earn the highest grades. Companies with serious
        financial difficulties receive the lowest. Occasionally, other factors
        enter the equation. For example, a company might incur a downgrade if it
        faces the loss of patent protection on a key product.
    </p>
    <p class="mb-2">
        If you’re a conservative or income-oriented investor, you may be most
        comfortable investing only in companies with Financial Strength ratings
        B+ or better.
    </p>
    <h2 class="text-3xl mb-2 font-bold">Other considerations</h2>
    <p class="mb-2">
        When times are good, investors tend to let a company’s financial
        situation slip into the background. Cash flow is healthy and bank loans
        are available. If necessary, the company can raise funds for expansion
        through stock and debt offerings. A company’s financial strength is
        especially important, however, when the economy is contracting. During a
        recession, cash flow falls, banks aren’t eager to lend, and pricing
        conditions are tougher when trying to sell shares or corporate debt.
    </p>
    <p class="mb-2">
        Muddying the waters is the fact that not all industries are structured
        the same way financially. The utilities and financial sectors are
        prominent examples in that regard. Electric, natural gas, and water
        utilities are much more highly leveraged than industrial companies, with
        debt often topping 50% of total capitalization. Utilities are required
        to use more debt, because it is cheaper than equity. The increased
        financial risk is offset by reduced business risk, since utilities are
        very stable businesses. Relatively more equity and better fixed-charge
        coverage ratios support utilities’ financial strength ratings.
    </p>
    <p class="mb-2">
        For financial services providers such as banks, thrifts, and insurance
        companies, the amount of capital, as measured by the equity to assets
        ratio, is a key consideration. More capital is better from a regulatory
        standpoint, but too much cuts down on profitability. Loss reserves are
        also important, as are funding sources. For lenders, deposits insured by
        the U.S. government represent a firmer source of liquidity than
        borrowings. It’s when liquidity dries up that disruption occurs in the
        credit markets.
    </p>
    <p class="mb-2">
        It’s important to note that financial strength doesn’t always translate
        into stock market outperformance. Shares of smaller companies and
        companies that are more leveraged may have a less desirable financial
        strength rating but often do significantly better when the economy is
        emerging from a recession. Since these companies are more sensitive to
        broader business conditions, their profits stand to rise more on a
        percentage basis in the early stages of a recovery. But, for investors
        looking for dividend-paying stocks and stocks to keep for a long period
        of time, it pays to be aware of a company’s financial standing.
    </p>
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